Goodbye China Downgrades, Hello Upgrades

Credit Suisse joined in on Monday, raising its growth target for this year to 7.6% from the 7.4% it set in June, which was a downgrade from a previous forecast of 8%, while Barclays also said that growth may have accelerated this quarter from the previous three months.

Bloomberg

Deutsche Bank was the first out of the gate on Thursday, raising its forecast for China’s second-half growth to 7.7% from 7.6%.

The upgrades so far are modest, although still striking considering it was just earlier this summer that that many brokers were rushing to cut forecasts ahead of what was then a widely expected slowdown in China’s second-quarter growth.

Much of the optimism has been sparked by the signs this month of surprisingly strong manufacturing activity, a key part of the world’s second-largest economy. That adds to a raft of strong data as well as indications of a willingness at the top levels of government in Beijing to avoid a sharp economic slowdown.

“We believe that the Chinese economy has bottomed,” Credit Suisse economist Dong Tao wrote in a note to clients on Monday. “The upward momentum may not be strong, but stabilization itself would be good news, given how bearish the market is about China’s outlook.”

Credit Suisse offered some caveats. It noted that the “core issue of the economy”—private investment—“is still missing,” and will likely remain so until China makes serious structural reforms.

The rising confidence for China also comes as smaller emerging markets in Asia lick their wounds from a nasty selloff last week and signs of deep economic imbalances. Indonesia’s Jakarta Composite Index last week fell 9% in just two days after the company reported an unexpectedly broad widening in the country’s current-account deficit, just as India worked to stem a historic drop in the value of the rupee.

China was nearly unscathed amid the selloff, protected by the stronger data and relatively closed nature of its market. China’s Shanghai Composite, for instance, ended last week just 0.5% lower, versus a 8.7% slide for Indonesian stocks and 7.4% decline for Thai shares.